Question

Zafra and Stephanie formed an equal profit- sharing “O&S Partnership” during the current year, with Zafra contributing $100,000 in cash and Stephanie contributing land (basis of $60,000, fair market value of $40,000) and equipment (basis of $0, fair market value of $60,000). What is Stephanie’s outside basis in the O&S partnership interest? Does any partner recognize gain/loss on this transaction? Please explain in detail giving reasons.

Answer 1

Answer 1:

Stephanie’s outside basis is her tax basis of her interest in the partnership.

Stephanie’s outside basis = Her tax basis in land + Her tax basis in equipment = $60000 + $0 = $60,000

Stephanie’s outside basis in the O&S partnership interest = $60,000

Answer 2:

Neither any partner nor partnership recognize gain or loss when property is contributed to partnership in exchange for partnership interest.

Hence:

None of partners recognize any gain/loss on this transaction